​​​​Automatic Exchange of Information (AEOI)

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ESBG position on AEOI​​

ESBG welcomes the aim for increased transparency and supports the initiatives to develop a global multilateral system for the exchange of information with clear and equal rules for everyone. ESBG works tirelessly towards the development of one system only as we believe that any move away from a global standard towards specific information requirements at an EU-level would not only undermine the global level playing field but also cause a very costly and undue burden on our members and we thus urge the European Institutions to avoid any moves in this direction. The uneven playing field faced by European institutions would also cause extensive additional costs, operationally and from a technology point of view which would severely penalise in particular smaller financial institutions.

Background on ​​​Automatic Exchange of Information (AEOI)​

In 2013, the G20 leaders invited the OECD to develop a global standard on automatic exchange of information which consists of a common reporting standard that will require financial institutions and brokers to report information to their own jurisdiction and this information will in turn be passed on to other relevant countries automatically each year. The standard applies to financial accounts and sets out the due diligence which financial institutions will need to apply.

The common reporting standard will result in similar reporting obligations across all countries, meaning that the sharing of tax information between states should be easier to collect as a result of matching domestic and international legal obligations. The plans expressly build upon the US Foreign Account Tax Compliance Act (FATCA) but diverges from FATCA by considering tax residency rather than tax citizenship. ​​

​Tax Transparency Package​

In recent years the European Commission has begun to focus on the challenge posed by cross-border tax fraud and tax evasion. The Commission has stated that unreported and untaxed income is considerably reducing national tax revenues, therefore, an increase in the efficiency and effectiveness of tax collection is needed. To this end the Commission launched the Tax Transparency Package.

One of the tax transparency initiatives was to repeal the Savings Tax Directive; as of 1 January 2016, this has been replaced by Council Directive 2014/107/EU on the mandatory automatic exchange of information. This directive significantly extends the scope of automatic exchange of information for tax purposes among EU Member States and now includes interest, dividends, account balances and sales from financial assets. Directive 2014/107/EU implements a single global standard developed by the OECD for the automatic exchange of information. The OECD standard was endorsed by G20 finance ministers in September 2014. EU agreements with Andorra, Liechtenstein, Monaco, San Marino and Switzerland, have been revised to be aligned with directive 2014/107/EU and the new global standard.

Directive 2014/107/EU extended the cooperation between EU tax authorities to automatic exchange of financial account information. This extension effectively incorporated the CRS within EU Council Directive 2011/16/EU on administrative cooperation in the field of taxation (also known as DAC 2). This is because in order to minimise costs and administrative burdens, both for tax administrations and for economic operators, it was crucial to ensure that the expanded scope of automatic exchange of information within the Union was in line with international developments.

The directive was to be transposed by all Member States as of 1 January 2016, and the first exchange of information between tax authorities is to be in 2017 except for Austria who have been granted a one-year extension and will not be required to exchange information under this directive until 2018.

OECD Base Erosion and Profit Shifting (BEPS)​

Aside from this, the OECD launched the Base Erosion and Profit Shifting (BEPS) Action Plan in 2013. After two years of discussions, the OECD's BEPS project has emerged as a non-binding 15-point action plan. The plan was structured around three fundamental pillars:

Introducing coherence in the domestic rules that affect cross-border activities.

Reinforcing substance requirements in the existing international standards, to ensure alignment of taxation with the location of economic activity and value creation.

Improving transparency.

The BEPS package offers governments a series of new measures to be implemented through domestic law changes, including strengthened rules on Controlled Foreign Corporations, a common approach to limiting base erosion through interest deductibility and new rules to prevent hybrid mismatch arrangements from making profits disappear for tax purposes through the use of complex financial instruments.

Following the endorsement of the BEPS Package by G20 Leaders in November 2015, the focus has now shifted to ensuring a consistent implementation, including the new transfer pricing reporting standards developed under Action 13 of the BEPS Action Plan. Last June, the OECD continued its mission to improve transparency in international tax matters with the release of its guidance on the implementation of country-by-country reporting (CbC). Under CbC reporting, Multinational Entities (MNEs) will be required to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. It will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in.​